FAILURE, REFUSAL OR SUSPENSION OF RENT PAYMENT DUE TO COVID-19 AS FORCE MAJEURE EVENT. IS THE TENANCY AGREEMENT ON YOUR SIDE?

By Angualia Daniel

 

Introduction

The outbreak of Coronavirus was declared a global pandemic by the World Health Organization. The Government of Uganda came up with aggressive measures to combat the spread of COVID-19 including; quarantines, imposing international travel restrictions, banning of both public and private transport and asking certain offices to close.

Through Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020 as amended dated 31st March, clause 5 of the Rules required closure of all shops and stores where non-food items are sold or which do not deal in drugs and agricultural chemicals, and seeds shall be closed until 5th May 2020. All service providers classified as non essential were asked to close.

The question is whether COVID-19 situation and subsequent closure of commercial premises amounts to force majeure and if so, whether such tenant can suspend, defer or refuse to pay rent for the duration of the lock down on grounds of COVID-19 and Public Health Rules as force majeure event.

Legal definition of Force Majeure

Force majeure is a clause inserted in the contract that is intended to excuse a party from performing his or her contractual obligations due to an event that the parties could not have anticipated or beyond their control.

The effect is that both parties are excused or discharged from the performance of their contractual obligations during the occurrence of the act. If a contract cannot be fulfilled due to force majeure, the obligations may be exempted in whole or in part depending on the impact of the force majeure.

The definition of “Force Majeure” therefore consists of four criteria, all of which must be satisfied for an event or circumstance to amount to Force Majeure: (i). an exceptional event or circumstances beyond the affected party’s control has occurred; (ii). the affected party could not reasonably have provided against the event or circumstance before entering into the contract; (iii). the same party also could not reasonably have avoided or overcome the event or circumstance once it arose; and (iv). the event or circumstance is not substantially the result of an act or omission by the counterparty.

Whether spread of COVID-19 and subsequent Governmental Restrictions amount to force majeure

The spread of COVID-19 can be argued to amount to Force Majeure in as far as; (i). COVID – 19 was outside the control of both the tenant and the landlord; (ii). Neither party could reasonably have provided against it before entering into the tenancy agreement, (iii) Neither party could reasonably have avoided or overcome the spread of the corona virus.

The declaration of COVID-19 as a global pandemic by World Health Organization, and the restrictions announced by H.E the President together with the restrictions imposed by the Public Health Act Rules make COVID-19 an “act of God”, “government restriction” and “a cause beyond the reasonable control of the party whose performance is affected.”

Whether a tenant can refuse or suspend rent payment due to COVID-19

In order to claim force majeure, force majeure must be specifically provided for in the tenancy agreement whereby the parties are excused from performance of their contract.  It is necessary to look to the tenancy agreement for provisions where rent may be suspended, delayed, deferred or reduced, or tenant’s obligation may be suspended, delayed or deferred, if the rented premise cannot be used or accessed due to epidemic/pandemic, disease outbreak, government order or other similar causes.

In a tenancy agreement, landlord’s obligation relating to use of premise is to permit the tenant to enjoy and use the premise. The shutting down of premises or closing of businesses is directed by force of law under Presidential directives and statutory instrument called Public Health (Control of COVID-19) (No. 2) Rules 2020 and not due to any act or omission by the landlord. The landlord was not directed to lock up the entire building and prohibit access to the premises therein. Therefore, it cannot be said that the tenant’s inability to use the premise is due to the landlord.

It is important to emphasize that force majeure clause is not implied by law and neither is it automatic.  In this case, it must be expressly included in the tenancy agreement by the parties, and the wording of the clause has to be examined to determine if it is wide enough to include Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020 or the Covid-19 outbreak and which denies the tenant’s right to use or access the premise, thereby leading to suspension or exemption of the tenant’s obligation to pay rent.

Other than the above there is need to ascertain if there are other clauses in the tenancy agreement where the tenant is unable to use or occupy the premises due to causes similar to Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020 or the Covid-19 which permits suspension of rent payment. Common provisions in tenancy agreements where rent is suspended because tenant is unable to use or occupy are usually confined to damage or destruction of the premises caused by events not attributable to the tenant.

However, it is possible that this suspension clause may be found in retail and industrial tenancies where the main or only source of revenue is business or production at the premise, as compared to office tenancies where work can still be carried out remotely. Again, the scope and wordings of force majeure events, causes and circumstances set out in such clause, is important to determine if it is sufficient to include the Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020 or the Covid-19 outbreak.

Tenants seeking to rely on the Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020 or the Covid-19 outbreak to refuse, suspend, defer or reduce rent must first, find out whether their tenancy agreements contains a force majeure clause, and if yes, whether the clause is wide enough to cover the Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020 or the COVID-19 outbreak.

In the absence of any force majeure or similar clause in tenancy agreements, tenants have no right to suspend, delay, defer or reduce rental payment, or even terminate the tenancy, due to the Presidential directives and Public Health (Control of COVID-19) (No. 2) Rules 2020  or Covid-19. Any failure or delay by the tenant to pay rent for any reason not specified or permitted in the tenancy agreement, constitutes a default or beach therein and would entitle the landlord to take actions set out in the agreement or conferred by law against the tenant such as; taking distress actions to recover arrears of rent, and even terminating the tenancy.

Conclusion on recommendation on the way forward

Although the tenancy agreements may not contain provisions for the tenants to suspend payment of rent, the tenants can still approach the landlord so as to negotiate for a reduction or waiver of rent, and landlords can decide whether to allow the tenants, especially good tenants who are facing genuine financial hardship, to remain in the premises and continue with their tenancies.

We hope that landlords and tenants shall work together to weather this unprecedented economic storm, and not out rightly insist on strict compliance with rent payment on tenants who are genuinely affected.

This article is intended for general knowledge only. For your specific need, contact us at Angualia Busiku & Co. Advocates for specific and particular advise.